In this edition, we talk about the growing number of companies floating IPOs and what lies in store ahead. We also talk about SEBI’s latest proposals to curb F&O trading, the massive tax demand on Infosys, and what the RBI could do about lending rates next week.
Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.
tl;dr Hear the article in brief instead?
In the 19th century, major gold rushes took place across the world. Places as far apart as Greece, Australia, New Zealand, Brazil, Chile, South Africa, the US and Canada saw miners rushing in, seeking their fortunes.
These gold rushes had one thing in common—they were all typically marked by a feeling of buoyancy and euphoria, a sort of “free for all” in which anyone, regardless of lineage or pedigree, colour or creed, could become abundantly wealthy, almost instantaneously. Curiously, while gold mining itself proved unprofitable for most mine owners and diggers, the ones that profited the most were the transporters, merchants, and providers of ancillary services.
Cut to 2024, and India’s capital markets are seeing a gold rush of a very different kind. They are in the midst of an “IPO rush”, a modern-day version of the gold rush in which companies big and small, are looking to cash in on the euphoria in the Indian stock market that is currently at record high levels.
Promoters and investors alike are looking to make a neat pile as quickly as they can before the tide turns, and the benchmark indices— Nifty and Sensex, which have scaled to bizarre heights—begin treading backwards.
This is why it should be no surprise that since the beginning of this year, nearly 40 companies have come out with initial public offerings (IPOs) and more than three dozen are in the queue to follow suit.
In fact, this week alone, India’s primary markets witnessed a flurry of activity with participants both on the main board and on the SME board floating public offerings. The ones on the main board included the likes of Ola Electric, Ceigall India Ltd, and Akums Drugs and Pharmaceuticals Ltd. Ola Electric’s listing will be the biggest yet this year in India, as the e-scooter maker that counts Japan’s SoftBank as an investor looks to raise $734 million.
Following Ola soon would be the likes of Firstcry and Unicommerce eSolutions, which is also backed by SoftBank. Companies that filed draft documents for IPOs this week include Hero Fincorp, Avanse Financial Services, Paras Healthcare and Suraksha Diagnostic. Later this year, South Korean automaker Hyundai Motor’s India unit is looking to raise $2.5-3 billion in what could potentially be India’s biggest IPO.
And then there are scores of SME listings. In fact, the SME segment saw as many as 117 listings in the first half of 2024 and another 10 this week alone.
What’s the amount companies are looking to raise through share sales? Estimates vary from Rs 50,000 crore to Rs 90,000 crore, depending on the timelines one considers and whether one is also looking at follow-on public offering.
But frankly, that is hardly the most important thing. What is important for retail investors like you is, whether the company is evenly valued or if its promoters and investors are selling their shares. That should be the single biggest determinant when you decide to put your hard-earned money on the line.
So, as always, don’t just be swayed by the prospects of listing gains or making a quick buck on an IPO. Do take a long, hard look at the company you want to invest in and take a measured call.
For all you know, a few very smart folks, chasing their own California Dream, could be walking away with the proverbial pot of gold, leaving investors like you with shares worth little more than gold dust.
Remember Paytm?
Choose Your Options
As we just told you, India’s stock markets have been at record highs. And now, the Securities and Exchange Board of India (SEBI) wants to cool things down. And in its crosshairs is the futures and options (F&O) segment.
This week, the market regulator proposed a series of near-term measures to prevent speculative trading, such as gambling in index derivatives, which include curbing multiple option contract expiries and increasing the size of options contracts. The seven measures suggested by the market watchdog are aimed at curbing market speculation, enhancing investor protection, and ensuring greater market stability.
‘’Until last year, the regulator was approaching the growing interest in options trading as an issue related to investor protection, but it has now become a macro issue,” said SEBI chief Madhabi Puri Buch.
SEBI’s proposals include a rationalisation of strike price for options, upfront collections of options premiums, removal of calender spread benefit on expiry day, intraday monitoring of position limits, a revision of minimum contract size, rationalization of weekly index products and an increase in margin, near contract expiry.
What is the reason for SEBI’s crackdown? Even as India’s F&O market has seen explosive growth in volumes post-COVID, a vast majority of individual traders and proprietorship firms are ending up on the losing side.
According to SEBI estimates, around 92.5 lakh such players lost around Rs 51,700 crore in FY23 (excluding statutory transaction costs). On the winning side of the table have been high-frequency algo-based proprietary traders and/or foreign portfolio investors (FPIs).
If the new measures come into play, both the National Stock Exchange (NSE) as well as the BSE stand to lose as do discount brokers who are likely to be impacted more as compared to regular brokerages. Regular brokers can hike prices to offset the impact, but for discount brokers, the measures will act as a double whammy, following the hike in the Securities Transaction Tax (STT) in the union budget last month.
As trading volumes fall, their topline will feel the pinch. Increasing brokerage charges will drive away the pocket-conscious retail investors, who make up most of their clientele. And that’s perhaps what SEBI wants anyway.
Taxing Time for Infosys
Last month, many individual taxpayers and retail investors were upset over tax changes in the Union Budget. This week, the attention shifted to big corporate houses as Infosys, India’s second-biggest software services exporter, received a notice to cough up Rs 32,403 crore, or almost $3.8 billion, in back taxes.
The goods and services tax department sent a notice to Bangalore-based Infosys accusing it of evading GST payments on services availed from its overseas offices, which cater to international clients, for five years ended 2022.
To be sure, Infosys isn’t alone. Over the past year, the GST department has sent more than 1,000 notices to companies, including Life Insurance Corporation of India, Dr Reddy’s Laboratories and Ultratech Cement. Tax authorities have also demanded nearly Rs 1 trillion from online gaming companies, which have challenged these demands in courts.
Still, the size of the tax bill sent to Infosys left everyone shocked. Not only is it the highest-ever tax demand on Infosys but it also is almost equivalent to the company’s entire revenue for the April-June quarter. TV Mohandas Pai, a former CFO of Infosys, even called this “tax terrorism”.
Infosys, however, is unlikely to be the only IT company facing such demand. Reports say the GST department is likely to issue notices to more IT companies alleging tax evasion related to work done by their foreign offices.
On its part, Infosys said it believed it paid all the relevant taxes and that it complied with all central and state regulations. The company later informed that while Karnataka government has withdrawn the pre-show cause notice, Infosys still has to submit response to the Directorate General of Goods and Services Tax Intelligence (DGGI).
The IT industry lobby group Nasscom said that the demand reflected “a lack of understanding” of the sector’s operating model by tax authorities. It also said that such “avoidable” legal disputes raise concerns among not just companies but also among investors and customers.
These tax notices come at a time when the IT industry was just recovering from high attrition and a slowdown in demand from the US and Europe. Now, Infosys and other IT companies will probably have to brace for a long legal battle.
Policy Wheel Turning Again
Next week, the Reserve Bank of India’s monetary policy committee will meet to decide on interest rates. The RBI is widely expected to keep the rates unchanged and begin easing the policy only after a few months, possibly starting the January-March 2025 quarter.
Meanwhile, other major central banks this week indicated that the end of pandemic-era tight monetary policy is closer than before. The Bank of England cut its benchmark interest rates from a 16-year high of 5.5% to 5.0%, joining the European Central Bank and the Bank of Canada in easing the monetary policy put in place to bring down inflation after the Covid-19 pandemic wrecked global supply chains and prompted governments to push spending higher.
With inflation now largely under control, including in India, interest rates will now be on a downward trajectory. Even the US Federal Reserve laid the groundwork this week for its first rate cut in September after holding keeping rates unchanged in its latest meeting.
Fed Chair Jerome Powell suggested in a press conference after the policy meeting that rate cuts could start as early as next month if the US economy follows its expected course.
“If we were to see inflation moving down … more or less in line with expectations, growth remains reasonably strong, and the labor market remains consistent with current conditions, then I think a rate cut could be on the table at the September meeting,” he said.
But while inflation is coming under control, economic concerns are growing once again. This pulled down US stocks on Thursday and Indian stock markets on Friday.
Market Wrap
The Sensex and the Nifty seem to be creating new records each week. This week was no different as the 30-share Sensex hit a record high of 82,129 points while the broader Nifty crossed the psychologically significant 25,000-mark.
However, a sell-off on Friday saw the indices pull back and they both ended the week down about 0.4% each.
Nifty stocks that gained the most this week include Adani Enterprises, Adani Ports, Divi’s Labs, Shriram Finance, NTPC, Asian Paints, Bharat Petroleum, Coal India, Apollo Hospitals, Power Grid, JSW Steel and Sun Pharma.
Nifty stocks that lost the most ground this week were Titan, IndusInd Bank, Bajaj Finance, Nestle India and Tata Steel.
Q1 Earnings Snapshot
- ITC profit edges up to Rs 4,917 crore but misses forecasts as expenses rise.
- Zomato consolidated profit jumps to Rs 253 crore from Rs 2 crore year ago, beats analysts’ estimate.
- Adani Enterprises consolidated net profit rises to Rs 1,455 crore from Rs 674 crore year ago.
- Adani Ports posts 47% jump in profit to Rs 3,113 crore.
- Adani Power profit drops 55% to Rs 3,913 crore as fuel costs rise.
- Adani-owned Ambuja Cement‘s profit slips 12% to Rs 571 crore but beats forecasts.
- Tata Steel profit rises 51% to Rs 960 crore on lower costs.
- Coal India beats estimates as profit rises 4% to Rs 10,959 crore.
- Sun Pharma profit jumps 40% to Rs 2,836 crore, exceeds estimates.
- Maruti Suzuki standalone profit soars 47% to Rs 3,650 crore, tops estimates.
- Mahindra & Mahindra standalone net profit climbs 23% to Rs 2,613 crore.
- State-owned BHEL report a net loss of Rs 213 crore versus a loss of Rs 212 crore year ago.
- State-owned Indian Oil‘s profit plunges 81% to Rs 2,643 crore on lower marketing margins.
- Tata Consumer consolidated net profit falls 9% to Rs 290 crore.
Other Headlines
- PSUs exempted from meeting 25% public shareholding norms for two years until August 2026.
- Govt collects Rs 1.82 trillion in goods and services tax in July, up 10.3% from year ago.
- Govt not rethinking issue of allowing Chinese FDI, says commerce minister Piyush Goyal.
- RBI shortlists Kotak Mahindra Bank, Emirates NBD and Canada’s Fairfax as bidders for IDBI Bank.
- Adani Group considers investing in Vietnam’s airports.
- Adani Energy raises $1 billion from institutional investors including GQG Partners, Gulf wealth funds.
- Nearly 300 small banks, including cooperative banks, hit by ransomware attack.
- Maruti, Hyundai, Tata Motors report lower wholesales for July as pent-up demand cools.
- Tata Motors says may look at hybrid vehicles if demand is strong.
- Toyota Kirloskar signs MoU with Maharashtra for new factory.
- Byju’s settles payments dispute with Board of Control for Cricket in India.
That’s it for this week! Until next week, happy investing!
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